TalkTech September 2008 Interview w Kevin Surace

Hello and welcome to Talk Tech. I'm Kristen White, and joining me here today is Kevin Surace, CEO of Serious Materials, which is actually our first cleantech company that we're featuring on the show. So Kevin, tell me a little about your company.

Well, you know, Serious Materials started back in 2002 to address a variety of high-tech building materials, actually problems in the built environment. And what we realized, of course, back in 2002, the term cleantech wasn't even a term. We didn't have that term. But what we realized over the years was that there was an opportunity to really look at the built environment as a major problem in CO2 and climate change.

Sure.

And what most people don't realize is on a worldwide basis, 52% of the CO2 generated is tied to the built environment. 12% to make our building materials every year and 40% to operate our buildings. Now that's an amazing statistic.

Yeah.

Let me add another statistic to that. Only 9% is cars. Only 9% is cars. So as much as we've spent hundreds of billions of dollars trying to make our cars better, and we should, and I drive a Prius and I recommend everybody else does, the fact of the matter is cars is a tiny, tiny, tiny thing and buildings are the big kahuna.

So can you explain what the built environment is?

Of course. The built environment is really what's right around us right now, the walls, floors, ceilings, windows, doors, the materials that go into making those things, and then us living in those things, right? Us living in our buildings. And we live in our homes and we work in our buildings and we heat and cool these buildings. And since the '70s, we've begun insulating these buildings. Most buildings are insulated at some level now. But it turns out there's so much more we can do because if 40% of the CO2 comes from our buildings because we heat and cool these buildings primarily—

Sure, sure.

And also deliver electricity to them to light them and run appliances and things, there's an awful lot more we can do. And in fact, some of the Some of the very best buildings being built today are what's called zero-energy buildings. It is technically possible today, with the best materials, to build something that basically uses no energy and generates no CO2 in its operation. Today, primarily, we heat and cool from the electric grid or from natural gas. Natural gas, the burning of natural gas generates lots of CO2.

Of course.

And costs double today what it did just a year ago. In fact, it's doubled on the wholesale market.

OK, right.

And then electricity is primarily natural gas and coal in this country. And a little bit of nuclear, a tiny bit of wind, and virtually no PV, no solar. So percentage-wise, it's really amazing how much is generated from fossil fuels.

It's my understanding your primary clean tech innovation is your EcoRock technology.

I can talk about a couple of the big ones. EcoRock is a real major invention. We began looking at the manufacturing process for gypsum drywall. And gypsum drywall is a wonderful product. There's nothing wrong with the product. It was invented in 1917. And in 1917, we weren't really concerned about energy cost, energy itself, fossil fuels, or CO2. Well, today when we look at these processes, we can think about redesigning those processes. And in fact, in the US anyway, drywall is one of the top 4 greenhouse gas producers of manufactured building materials. It includes drywall and glass and metals and cements. Those are the big 4 that go into buildings.

Okay.

And so the manufacture of drywall generates Roughly 20 billion pounds of CO2 a year in the US, in North America. Those are big numbers. A pound of CO2 could practically fill a room. So we're talking about a lot of CO2.

Sure.

And so we went to work a few years ago on redesigning that process from scratch. I'll grab the EcoRock prop here, but the bottom line is EcoRock ends up looking very much like gypsum drywall. There's really no difference. And you can't tell the difference, but there's no gypsum in it, so it's not calcined. And it's not dried. It cooks itself and dries itself.

Okay, I see. So now is it functionally equivalent to gypsum?

Functionally equivalent.

Okay.

That's right. And that'll be out this fall or fall 2008.

Okay. In terms of insulating properties and performance?

About the same as gypsum drywall. That's right. We wanted this product to be exactly the same as gypsum drywall. Now, in the future, we may have high-insulating versions and other things, but on day one, it looks, smells, and feels like gypsum drywall. It just took virtually no energy to manufacture.

So what about the cost of the product?

Well, you know, the cost of the product on day one will be equivalent to the range of drywalls, right? This will have some additional features, and the range of drywalls today is, let's say, $6 to about $18 or so. We will certainly be in that range with a new set of features. But we should jump to windows.

Okay, yes, that's right. You had a recent acquisition.

We did, and we've been in the window business for several years, and then we recently purchased a company called Elpin Windows out of Colorado. Elpin has been in the high R-value window business for 27 years. Let's talk a little bit about windows so we understand the importance of the built environment.

Okay.

So when you look at your buildings and we say that they use a lot of energy, the majority of that energy is heating and cooling. Not a surprise.

Okay.

And it turns out that a homeowner, people watching this today, can do a few things. They can insulate their walls, which they've probably already done or was done for them. They can seal up their air conditioning or, you know, HVAC ducts, their heating ducts, which should be sealed anyway, but go ahead and take some tape and You can put that around any of the joints if they're leaking. You can get automated thermostats and programmable thermostats. Virtually everyone has those today.

That's right.

But if you don't, you should have one of those. But once you've done those, you're done except for your windows.

Okay.

So, a little-known fact is that even though we've insulated our walls these days to R-10 or R-11 or R-13 or R-15 or R-20, and R-value is the way you rate the heat that goes through, that leaks through your wall. So, a higher number is more resistance to that heat leak.

Okay.

So you want a high number. However, even though we've insulated our walls to, let's say, on average, R-15, our windows, the best windows you can buy today, Andersen, Pella, Marvin, Milgard, doesn't matter, R-3.

R-3. Is that double-paned?

That's dual-pane low-E.

Okay.

And worse yet, of course, those manufacturers won't tell you what the full-frame R-value is because R-3 is an embarrassment.

Okay. So path of least resistance, everything's going to go right out the windows even if you put a lot of effort into it.

Everything goes right out the window.

That's my line.

Yes.

It is.

All your heat literally goes out the window.

Okay.

It is absolutely true. And so we've solved that with some breakthrough technology in what we call thermoproof windows. And thermoproof windows take windows to R-6, R-8, R-10, R-12, R-15, all the way out to R-20. The loss of heat through windows and the loss of cooling through windows is a loss of about 266 million metric tons of CO2 a year.

Wow.

And that's how much is generated because of the heat leaking through our windows. So this is something we can easily solve, and it pays for itself. And it pays for itself 1 year, 2 years, 3 years, 4 years.

Right, in terms of the amount of money you've saved on utilities.

Exactly right.

Okay, okay. So what is it about your window technology that allows you to achieve these low—

Well, it's interesting. There's a lot, a lot of things. Here's an example of the window technology, but you'll see that there's 2 suspended Mylar layers. These are metal suspended These are metal sputtered Mylar that is suspended in between the window. Now, you can't see that when you look through the glass, but you can see it when I do a cutaway, and you can see what's in there. It's also got a new Eco Spacer, which is a technology that we developed so that the R-value, or the resistance to heat flow across the edges, did not get compromised.

Okay.

And that was important. And then we mount all of this in a special kind of mounting apparatus into a fully insulated soy-based insulated fiberglass frame. We had to develop a new spacer technology because normally these spacers that you see separating the glass would be metal, and of course metal conducts heat quite nicely. Conducts heat, absolutely. So you can't have metal, so we had to get the metal out and go to another technology that we developed in-house, and this is a combination of technologies that's working extremely well for us. And then, and then that is sealed with 3 different kinds of seals, and then that drops into a window frame, and then that window frame is now insulated. instead of uninsulated. And it's not aluminum, it's fiberglass and polyurethane. So really much more sophisticated technologies all the way from the frame all the way to the center glass.

Okay, so you have good insulators, reflectors, and good seals.

Yes.

Kind of all put together.

All put together. We've got, the company as a whole has some 35 patents pending and one issued already, and there's a lot around this window technology as well.

So in terms of the EcoRock, who's your target market for that? So I understand the windows because of the cost savings benefits, but for people, some people might not be as concerned about the environment. They should be, but what would make them go out and buy the EcoRock?

That's a great question. So in this country, there's something called LEED building standards, L-E-E-D, and those are green building standards that come from the USGBC, or the US Green Building Council. They're about 14 years old, and they've really taken off in the last 4 or 5 years. So much so that 12% of commercial structures this year will be built to LEED standards. Oh wow.

12%.

Now that is, you know, $50, $60 billion of buildings or so. I mean, this is a big market. And every year right now there's about between $500 and $800 million of drywall going into LEED projects, but they can only use regular gypsum drywall. They have no other choices today. So we're going to give them a choice that's much more environmentally friendly from a CO2 impact standpoint and from an energy standpoint. You know, energy is an interesting thing because I think a lot of people don't think about all the energy that we generate and how it gets used.

Right.

The world today uses about 12 terawatts of energy annually.

Wow.

But when you look at the growth over the next 30 years of China, India, and the rest of the world's population, The projections are that we'll need 30 terawatts in 30 years. Now, that's another 18 terawatts. That's more than double the overall energy that we have.

Yeah.

Now, a couple of things come into play here. One, in 30 years, we'll be out of oil as we know it. We will be out of oil as we know it. Oil generates about between 25 and 30% of all our energy today. We'll be nearing the point of out of natural gas as we know it. And so 66%, roughly, of all the energy we generate today Wow. So we can't rely on those 30 years from now.

Yeah.

Yet we've got to generate another 18 terawatts. So what people say is, great, we'll use nuclear. It's one thing people say. Well, if you authorized 45 nuclear plants every year starting today and did that for the next 30 years, and you had a 10-year build cycle, because that's how long it takes to build them, 45 a year— now, we only authorize about 2, but if we're authorizing and licensing 45 a year, That would be 1 terawatt in 30 years. If we built all the PV we— that is planned to build today in every plant worldwide, PV solar panels, you know, we're looking at some number between 1 and 3 terawatts. If we look at taking every acre on Earth of plantable land and instead of planting the crops for us to eat, we're going to plant crops to turn into—

Right, ethanol.

Ethanol or other biofuels or whatever. whatever, that's another 1 or 2 terawatts. So it turns out it is not obvious how to get to 30 terawatts. And in fact, the way the world is doing it right now, 4 coal plants a week. That'll get you the other 18 terawatts. It's going to be 6,000 additional coal plants. That's what the world is doing right now.

But that's a lot of emissions, I guess.

It's terrible. It's the most emitting plant type or fossil fuel that we have. So what else could we do? Well, if instead of doing all of those things, we said, let's reduce the impact of the built environment by 75%, not by 100%, because we could do 100%. We're proving that we can do that. But let's say by 75% worldwide. That's 12 terawatts out 30 years. So we could save more than every nuclear plant, than every crop, than every piece of solar that we're going to build. We could just save in our buildings. And in saving in our buildings, we actually save money as well.

So obviously, through implementation of technologies such as yours, we'll really cut down on our energy consumption. But eventually, as you said, things are going to run out and we need some sort of alternative energy. So what do you foresee as being the winning solution there?

Well, you know, first of all, cars are going to move electric. They're going to move to the grid, starting with the Chevy Volt and others beyond that. Tesla's already done it. But that's what we're pushing to the grid.

But to create electricity that's still connected to the grid.

Well, that's the problem, right? We're going to push it to the grid and then we've got a grid problem. I think you're going to see a lot more nuclear on the grid, a lot of thermal solar, because thermal solar is very cheap to deploy on a cost per kilowatt hour. We'll see PVM buildings. So we'll start to get buildings that are zero energy because they generate some of their energy. We're going to see more use of wind. So I think we're going to tap all of those. And look, if we tap all of those and we can save that 12 terawatts, we begin to get there.

So now to talk about VC funding. As a startup, you've You've raised, you said, $65 million in VC funding. So do you have any advice to other entrepreneurs on how to go about this?

Sure. You know, what I've— this is probably the 10th company I've raised money with, right? But what I would say is, you know, choose your investors wisely. You know, VCs are wonderful to deal with if you've got the right people around the table. If you pick the wrong people, it's not going to be fun. But you want to pick the right people that are going to be patient. You need patience in Sure. In these things. I think anyone who— this is a 7-year-old company now, but anyone who starts a company and thinks that they're going to take it public in a year or two, that happened in the internet heyday, but traditionally, it takes 7 to 10 years to get a public offering in a quality company. While there's not as many software startups today, certainly in cleantech, it's going to be 7 to 10 years, and maybe even a little bit longer. Look, if I remember, it took Microsoft 10 years to go public, and Microsoft was a very successful company. So we have to sort of get rid of this notion of taking companies public in a year or 2 or 3.

Yeah.

And have— you know, you spend a year or 2 or 3 getting your IP in order, getting your technology to work, beginning to form your channels and your markets, and then you come to market. You spend the next 3 or 4 years building on that market, and then you bring some other products to market.

And by year 7 through 10, you probably have something that's very interesting to So just speaking generally, across all industries, what do you feel like it really takes to be a successful entrepreneur and successfully launch a startup?

Well, you know, first of all, at the very beginning, you have to be a jack of all trades. I think an entrepreneur, or the guy who's pretending to be the CEO, or is the CEO, you better be a jack of all trades. You better know a lot about marketing, sales, everything else, manufacturing, development, R&D. And part of the reason for that is at the beginning you just can't hire the best and the brightest. Everyone thinks they've got the best and the brightest because their college roommate wants to join them.

Sure.

That may or may not be the long-term strategy for the company. And you end up with people who believe in your vision or who want to come in early, but frankly the best and the brightest people who have the most experience don't join a startup with 3 people. They'll join a startup with 100 people. But you're going to have to grow before you hire the real A-players out of industry. So at the beginning, you better be a jack of all trades, but later on, you better not be. In fact, you want to allow that team to really run the company. And your VP group of A-players really runs the company. The CEO doesn't. The CEO sets the vision, sets the direction, absorbs a lot of information, goes out and meets the major customers, meets your major partners, speaks at all the conferences. That's what you do as CEO. You're the public face. Well, you're the public face, and you're also the face that your major customers want to work with and want to see, and they want to know that you're going to be there for them when there's a problem. So you make those kinds of major decisions, but the operation of the company is then left to your team.

Well, I enjoyed speaking with you today.

Enjoyed speaking with you, and good luck with your video blog. It looks great so far, and I can't wait to see more.

Thank you very much. You bet.

Thank you.

And thanks for watching Top CEOs. Talk, talk.